The financial markets in Argentina are expected to endure some battering today after the country fell into default for the second time in more than 12 years. Argentine government officials spent yesterday trying to make a deal with their creditors in New York, but those talks collapsed. And Standard & Poor's announced that it would lower Argentina's already low bond rating. NPR's Jim Zarroli joins me now. Jim, good morning. And could you tell me what happened yesterday and why the whole thing fell apart?

JIM ZARROLI, BYLINE: Well, yesterday was the deadline for Argentina to make a payment on some of the bonds it's issued. It's been in this long-running dispute with bondholders over the years. And the dispute grew out of its default in 2002. Essentially, Argentina was able to reach agreement with most of the bondholders from that default, so they ended up paying less. But there were a few holdouts. They took Argentina to court. A federal judge sided with them and said Argentina couldn't pay some of its bondholders without also paying the holdouts. For awhile yesterday it looked like the dispute would be resolved. There were talks in New York. The two sides actually met face-to-face for the first time this week. But then, late yesterday afternoon, the talks collapsed. Argentina officials left the meeting and went back to Argentina.

WERTHEIMER: Well, what do you think it actually means for Argentina to be in this kind of fairly exotic form of default - partial default?

ZARROLI: Yeah, it opens the country up to legal actions by some of its bondholders. I mean, if enough of them get together, they can now step forward and demand to be paid back everything they're owed. But I think that's only one of the problems it faces as a result of the default. I mean, this really spells some big trouble for the Argentine economy. The court-appointed mediator in the case came out with a statement yesterday, after talks collapsed, saying, you know, the impact of a default is not predictable, but it is certainly not positive.

WERTHEIMER: Well, obviously the banks and other bondholders are going to be distressed, but what about ordinary folks? Are they going to know that something went horribly wrong?

ZARROLI: Yeah, I mean, it means several things. It means Argentina's going to be frozen out of the debt markets for years. It's already been unable to borrow, but it had hopes of sort of changing that. Now that's not going to happen. You know, it's going to affect the value of Argentina's currency. It will make imports more expensive. It will raise interest rates. It will cause higher inflation. Argentina already has a really high inflation rate; now it's going to be worse. Those are some of the predictions that economists are making, anyway. This was a country that was already struggling. Now it's going to be struggling more.

WERTHEIMER: Do Argentine officials have any suggestions about what they might do, where they might go next?

ZARROLI: The economy minister, Axel Kicillof - he was at the talks yesterday, and he spoke to the press as he was leaving. He said a lot of things the government has been saying all along. He blamed the crisis on these creditors, these holdout hedge funds that own the debt. He said they were vultures. He also said there was still a chance of a private sector solution to the debt crisis. By that, I think he was talking about a proposal that surfaced yesterday in which the banks in Argentina would buy up some of the debt that's at issue here. There are a lot of questions about how that would work, whether it's feasible. But I think at this point, the government is just anxious to show the financial markets that all hope is not lost.